Conversion country

Annemarie MannionTribune staff reporter

As he was looking to buy a home in the suburbs, the bells and whistles of new construction held little appeal for Mark Katz. He drove past new developments to a 1980s apartment complex that had been converted to condos.

Older construction had just what Katz wanted as he downsized from a single-family house: an established community, mature trees and landscaping and a floor plan with ample space for working at home.

"I'm self-employed. I wanted to use one of the bedrooms as an office. This works well for that," said Katz, 53, who does site selection and marketing for restaurants. He chose a three-bedroom unit at Royal Oak Condominiums in Wildwood, Ill.

Such conversions of apartments to condos have been flourishing in the suburbs, according to Chicago-based Appraisal Research Consultants, which reports that 4,500 apartments in the suburbs were converted to condos in 2006. There were 2,100 conversions in 2005.

This burst of conversions can be attributed to several factors, developers and Realtors say.

"I think there's market demand among buyers, and there are investors that account for about 20 percent of our purchases," said

Nicholas Helmer, president of Inland Great Lakes in Oak Brook, which did the conversion at Royal Oak. He estimates that his company has converted about 5,600 units in the suburbs in the last five years.

When Inland got started, he said, "There weren't many conversions. We got into a market that was waiting to bloom."

And blossom it has. Gail Lissner, vice president at Appraisal Research Consultants, said suburban conversions are increasing because owners of apartment complexes saw developers were willing to buy their properties at the right price. "There was product available, and there is a niche of affordable apartments in the two- or three-story walk-up that is selling well," she said.

Mike Sparks, managing member of Sparks Associates, agreed. "Building owners have been able to sell their properties at a higher price to a converter than to an investor who would hold it and rent it," he said.

Sparks' company has converted eight buildings in the suburbs, including 12 Oaks at Schaumburg.

Many conversions, such as those at 12 Oaks, are designed to appeal to first-time buyers or to people looking for an affordable home.

"The buyers we've tried to hit are in the affordability niche. They are looking for condos under $135,000," said Helmer.

Describing the type of apartment buildings that go condo in the suburbs, Lissner said: "These are those 30-year-old buildings. They are nothing that you say, 'Oh, I really want to live there. It's that you say, 'Oh, I can afford that.' "

Jeff Prosapio, partner at Romeoville-based Marquette Cos., said conversions are substantially less expensive than building a new structure. In addition, apartments built 25 or 30 years ago often were brick and would be costly to reproduce.

"If you were to build a brick building today, it would cost in the $300-a-square-foot range. But a purchaser can get a unit in a converted building that is brick at $150 a square foot," Prosapio said.

His company has converted Bourbon Square in Palatine, where one-bedroom units are priced about $180,000 to $190,000 and two bedrooms around $220,000. The company is converting another complex, The Ponds of Naperville, formerly Mill Ponds. The units there will be priced from $120,000 to $170,000. New condos in these areas would start at $400,000, Prosapio estimates.

Though the housing market has slowed, Sparks said the first-time-buyer market is relatively strong. Sparks has dubbed the conversion market in which he operates as "blue-collar condos."

"The market in the burbs for blue-collar condos is hot. These are where one bedrooms are priced at $100,000 and two bedrooms at $120,000, and they sell out in six to 12 months," he said.

Though buyers can upgrade units with granite counters and other amenities, many are offered as-is, which usually means with some improvements such as fresh paint, new carpet, new light fixtures, replacement of outdated-looking cabinets and vanities, and functioning, though not necessarily new, appliances and mechanical systems.

"Developers often offer upgrade packages, but sales are usually for as-is condition. Many buyers will update their units over time. They can do it less expensively," Lissner said.

Prosapio said buyers at his properties know upfront what will be improved and who will pay for it. "We show what areas need improvement or replacement and we make a commitment that the work will be done on our dime," he said.

"If there is something that isn't right, we fix it. If something is right and it's no older than 5 years old, then it is what it is," Helmer said.

Honore Frumentino, a Realtor with Koenig & Strey GMAC Real Estate in Deerfield, said buyers of conversions may not get the amenities people want today, such as an in-unit washer and dryer, a garage or two full baths in a two-bedroom unit.

Still, as Katz has found, conversions offer other benefits. Apartment complexes are generally near major transportation routes and train stations.

In addition, because land was not as expensive two or three decades ago, they often have more spacious grounds than newer buildings. Units in these complexes often number in the hundreds, rather than the dozens. So there are more owners to share expenses. Amenities often include indoor or outdoor swimming pools, tennis courts and clubhouses with exercise rooms. At Royal Oak, there is even a football field.

"The great thing is having a larger community of owners to support those amenities," said Prosapio. "With 300 or 500 units, having an indoor pool is a lot more affordable. You can keep assessments down and services up."

For Katz, the 17 acres of grounds at Royal Oak was just one of the appealing aspects. "There is a lot of room between buildings and a lot of grass and mature trees," he said.

Even in the building's common areas, there's a feeling of openness that he cherishes.

"The buildings have longer corridors [than new construction]," he said. "The doors of the units are farther apart so you're not on top of each other. You get a feeling of separateness and privacy."

With developers noting that many of their units are being bought as investments, the unit next door may be owned by someone who is renting it out.

John Clery, a real estate attorney in Schaumburg, is one of those investors. He has bought condos in converted apartment communities in several suburbs including some at 12 Oaks at Schaumburg. He and 40 other investors banded together to buy the units.

"If you go in with several other people, you'll get incentives," he said. "When I looked at the numbers and the incentives, it looked like a good deal."

Incentives may include a guaranteed renter for a year or elimination of the association fees for a certain period, he said.

Still, he is not sure how his investment in conversions will turn out.

"The problem we ran into is that appreciation started to level off. We're still open to holding on to them for three, four or five years and then selling them," he said.

Whether you are buying to live in the unit or as an investment, the likelihood is that sooner or later you will sell. "The key is to find a quality building where people would want to live," Clery said.

He continues to see condo conversions as a good opportunity. "I think prices are reasonable, even though it may take them longer to appreciate" in the cooler real estate market, he said.

For Katz, his three-bedroom floor plan has all he needs: room for his office, grounds on which he takes long walks and space for his two cats. He likes the full-grown trees where squirrels frolic as his cats keep an eye on them from the windows.

"My cats really live here and let me occupy a space," he said with a laugh.